Inflation rises 0.59%, surprises analysts and leaves behind 3 months of decline

High IPCA in October ends deflation period; accumulated in 12 months slows to 6.47%

After three consecutive months of deflation, the IPCA (National Index of Consumer Prices) rose again in October, informed the IBGE (Brazilian Institute of Geography and Statistics) this Thursday (10th).

Driven by food, the country’s official inflation indicator rose by 0.59% last month. The rate was above the forecasts of analysts consulted by the Bloomberg agency, who had expected an increase of 0.49%.

The new result came after drops of 0.29% in September, 0.36% in August and 0.68% in July.

In 12 months, the IPCA accumulated a high of 6.47% until October, the lowest since March 2021 (6.10%). The accumulated was at 7.17% until September this year.

Even with the 12-month relief, the IPCA is on track to break the inflation target pursued by the BC (Central Bank) for the second consecutive year.

The financial market projects an increase of 5.63% until December, according to the median of the Focus bulletin released on Monday (7) by the BC. The center of the target is 3.50% in 2022. The ceiling is 5%.

“The message is that inflation continues to be a concern. The level remains high”, says Mirella Hirakawa, senior economist at the manager AZ Quest.

Food goes up again

Of the 9 groups of IPCA products and services, 8 had progress in October. The food and beverage and transport segments, which had retreated 0.51% and 1.98% in September, rose again last month. This helped to pressure the IPCA.

The food group advanced 0.72%. Thus, it had the greatest contribution to the October index, 0.16 percentage point.

The increase was driven by food at home (0.80%). The IBGE highlighted the advances in potato (23.36%) and tomato (17.63%). There were also significant increases in onions (9.31%) and fruits (3.56%).

On the side of declines, the highlights were long-life milk (-6.32%), which had already dropped 13.71% in September, and soybean oil (-2.85%), which marked the fifth reduction consecutive.

Pedro Kislanov, IPCA survey manager, recalled that food has been pressured this year by supply shocks due to weather effects. “You see issues from the field influencing,” he said.

According to him, there is also the weight of the increase in production costs after the start of the Ukrainian War. Kislanov also mentioned that food prices tend to rise towards the end of the year.

“Now we are beginning to notice the seasonal effect, with increased rainfall, which is good for milk, but bad for other foods,” he pointed out.

After food and beverages, the main impacts of the groups came from health and personal care (1.16%) and transport (0.58%).

Contributions were 0.15 percentage point and 0.12 percentage point, respectively. The three segments accounted for around 73% of the October IPCA.

In transport, the decline in fuel (-1.27%) was less intense than in the previous month (-8.50%). Gasoline (-1.56%), diesel oil (-2.19%) and vehicular gas (-1.21%) continued to fall, while ethanol recorded a rise of 1.34%.

To try to contain inflation in the election year, President Jair Bolsonaro (PL) sanctioned in June the ceiling for charging ICMS (state tax) on fuel. The measure was accompanied by a reduction in prices at Petrobras refineries.

Together, the two factors drove fuels down, which pushed the IPCA deflation on the eve of the elections. The truce in the gas station pumps, however, now shows signs of losing momentum.

Still in transport, there was a significant increase in the prices of air tickets in October (27.38%). Tickets made the largest individual contribution to last month’s IPCA (0.16 percentage point).

most expensive clothes

The greatest variation between groups came from clothing. The branch rose 1.22% in October. In 12 months, it accumulates a high of 18.48%.

“This is related to the resumption of demand, in the context of improving the pandemic,” said Kislanov.

Pressured production costs also played a role in the cost of clothing, the researcher added.

Only the communication group had a price drop in October. The drop was 0.48%.

According to Mirella Hirakawa, from AZ Quest, the trend is that the impact of the ICMS reduction, which also reached energy, transport and telecommunications, will decrease even more until the end of the year. Thus, there is no prospect of further deflation in 2022, according to the economist.

Scenario for 2023

During the pandemic, high inflation affected products sensitive to the pocket of the poorest Brazilians, such as food. This served as ammunition for the campaign of Luiz Inácio Lula da Silva (PT), who defeated Bolsonaro in the second round of the elections.

For 2023, the estimate of the Focus bulletin signals IPCA of 4.94%. The market is still waiting for the assembly of Lula’s economic team to assess the possible directions of the new government starting next year.

In the view of analysts, one of the main PT challenges will be to reconcile fiscal responsibility with the payment of social benefits promised during the campaign, including maintaining the minimum amount of R$ 600 of Auxílio Brasil, which must be renamed Bolsa Família.

Source: Leaf